History
This is a short-selling strategy based on Professor Beneish's M-Score - this is a mathematical model that uses eight financial ratios from the company's financial statements to assess the degree to which the earnings may have been manipulated. It is similar to the Altman Z-Score, but it is focused on detecting earnings manipulation rather than bankruptcy. The research suggests that a score greater than -1.78 indicates a strong likelihood of a firm being a manipulator. Here is the link to the original Detection of Earnings Manipulation paper as well as the subsequent paper - The Relation between Accruals and Earnings Manipulation.
The screen below highlights companies that have had a M-score above the threshold for two years in a row in order to reduce the likelihood that a given year's result is coincidental or a rogue data input error. more »

Many companies can increase their reported earnings by booking sales early, delaying expense recognition, capitalising expenses and other tricks of the trade. Most of these tricks aren't illegal, but regular practice can signify a company that may be getting into bad habits. The M Score predicted such high profile failures as Enron and has even been shown to be useful as a short selling technique.